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Huffy's Tough Year

The famous bike and sports equipment maker posts big losses for 2003.

wnHuffy(NYSE:HUF) is in a bind. The brand name, synonymous with kids' first bikes, is well known. Maybe it's no Nike(NYSE:NKE) or Reebok(NYSE:RBK), but ask just about anyone and they'll recognize the moniker.

Unfortunately, the company has not been able to turn the brand into dollars. These days, it is more diversified than bicycles, manufacturing basketball, golf, snowboard, and in-line skate equipment. Unfortunately, the broad product line hasn't been enough to keep Huffy healthy.

This morning, Huffy announced a Q4 net loss of $0.74 per share, 155% more red ink than the year-ago quarter. For full-year 2003, the loss was $0.49 per share, more than four times worse than last year's $0.12.

But those numbers don't begin to tell the whole story. There are plenty of special charges over the past two years, mostly related to discontinued operations. Huffy needs substantial restructuring, and to judge by today's numbers, plenty of work remains to be done. Even though the firm has been selling non-performing assets, SG&A expense ballooned 19.3% in 2003, completely erasing the gross profit eked out on an 18.3% increase in net sales.

None of this is exactly new news. Back in January, the company warned that sales were in line with expectations, but losses from continuing operations were shaping up to be worse than originally feared. And a peek at the balance sheet is scarier than a trip on a brakeless two-wheeler. The company has a paltry $1.4 million in cash, vs. total debt of nearly $81 million (including notes payable, the short-term portion of long-term debt, and long-term debt).

That's a precarious position.

Today, management announced a plan to cut 20% off the payroll, and the firm aims to put earnings in the black next year. Investors may take a more pessimistic view in light of Huffy's cautious statement about amending terms with its lenders to ensure adequate liquidity. That's not a surprising possibility, given the company's cash crunch and debt load.